Analyzing conflicts of interest – where to start

A conflict of interest (“COI “) analysis of any situation should generally start with an identification of the relevant duty (or duties), which sometimes (but not always) are legal in nature.  Sources of such duties typically include the following.

First, there can be express contractual provisions mandating that employees, agents and others conduct themselves in a conflict-free (or conflict-disclosed) way.  An employment agreement would typically have a provision of this sort.  So would agency or retainer agreements.

Second, a code of conduct or other internal policy document could create a contractual COI obligation – either because it has been formally agreed to by employees or under an “implied contract” theory in the absence of such explicit agreement.  Of course, some codes disclaim any intent to create a contractual obligation, but their COI provisions could still help to create (or prove) an ethical duty.

Third, another important source of duties are statutes and regulations addressing COIs in a variety of contexts. These include types of employment (e.g., for government employees); regulated businesses (e.g., healthcare, financial services); or other settings.

Fourth is the fiduciary duty of loyalty, which serves as a “default” under common law. That is, it specifies loyalty-related obligations for directors, employees and other agents even in the absence of a contract or statute.

Note, however, that in some circumstances a party might “contract out” of such an obligation or limit its scope, although doing so would not always be effective as a matter of law. As a general matter, being able to contract out of or otherwise limit a duty of loyalty is more likely when the relationship is between parties of relatively equal bargaining power and sophistication.

Finally, there are duty-related standards of conduct for certain professions. Some may be enforced by various legal regimes (as in the case of rules of professional responsibility for attorneys), the violation of which can lead to discipline.  But such aren’t always present (as in the case of journalists, where  – to my knowledge –  there is no such regime).

This is only a very general framework, and more information about COIs and duties can be found throughout this blog.